A smart card is a plastic card with an embedded microchip that allows its owner to use, among other things, the smart card as a substitute for cash in purchasing a wide variety of goods and services. Smart cards are well known and have enjoyed wide commercial success, particularly in Europe and Asia, and are now becoming well known and widely accepted in the United States. Smart cards typically conform to ISO Standard 7816-4 from the International Standards Organization (ISO) and include an embedded internal microprocessor or microcontroller. At present, smart cards used in the financial sector take three forms: (1) a re-loadable, prepaid debit card that can be purchased at a variety of stores; (2) a debit card associated with a checking account at a bank; and (3) a typical credit card issued by a bank or a banking institution such as Discover®, Visa®, or Mastercard®.
One innovation of prepaid smart cards, or prepaid debit cards, is that they can be programmed to store a numerical value equaling the prepayment in cash by its owner and to deduct expenditures from the monetary value until the value is expended (i.e., zero balance is shown). The owner can then re-load the debit card by prepayment in cash and continue to use the same card. Thus, a prepaid debit card provides the convenience of a credit card, but does not require pre-qualification as to credit history, income, or the like. At any one time, a debit card can store a value of any monetary amount that has been credited to the user's card or user's checking account at a bank or banking institution. See The Non-Profit's Guide to Prepaid Cards, The Center for Financial Services Innovation, Chicago, Ill., September 2010. Further advantages of prepaid debit cards are that they eliminate the need to verify the ownership or the credit status and compliance of the user. A debit or credit card is typically activated by a personal PIN number to protect the owner from theft; thus, the particular smart card is of no value to anyone except the owner who possesses the PIN number.
A debit card associated with a checking account at a bank allows the card owner the convenience of the use of an electronic card in his or her daily purchases. The amount of money available to the owner is the amount found in the debit card owner's checking account. This kind of debit card is helpful to the card owner in that he or she is only able to spend existing funds, and this reduces the chance of future indebtedness. However, the debit card owner must be careful in its use, particularly when making multiple purchases in a short period of time because the bank will usually process the highest-priced purchase first, and if the checking account funds are insufficient, additional overdraft fees can be charged to each of the smaller purchases made during that particular short period of time. Assignment of overdraft fees may continue until the debit card owner becomes aware that a set of overdraft fees has further caused even more overdraft fees. To add to the problematic circumstances, if the debit card owner calls his or her bank requesting an account balance, the bank may provide any of three balances: a balance with pending transactions, an actual final balance (i.e., bank fees have been deducted for the month), or a balance showing available funds at the time of the call. Overdraft fees also occur with credit cards. A typical credit card issued by a bank or banking institution provides an infusion of money to the owner of the credit card, who then pays back the “loaned” money in monthly installments and at a specified rate of interest. Usually the monthly payment schedule is absolute, and if the credit card owner is late in paying the credit card company, the owner must pay an additional late fee.
A further characteristic of the prepaid debit card is that, as with cash transactions, no individual record of types of purchase is identified, allowing for the privacy of one's own transactions. Of course, if the debit card is linked to a financial institution, such as a bank, the bank keeps records of each transaction for later use by the card holder. Thus, the debit card provides the privacy of cash, but the safety and convenience of credit cards. In some countries, such as France, the smart card is a branded cash alternative for a wide range of goods and services, including telephone calls, highway tolls, retail store purchases, restaurant charges, taxicab charges, etc. In one sense, branded smart cards may be similar to prepaid debit cards, in the sense that the owner recognizes a limit to the utility of the card. In addition, if overcharges are allowed, the penalties or charges for going beyond the card limit may be onerous, especially for the unbanked, underbanked, or underserved users of such cards.
Unbanked people refers to people who conduct their financial lives entirely outside traditional banks and credit unions, while underbanked people are those who maintain a checking or savings account while also using alternative providers, such as payday loans. The credit needs of the unbanked and underbanked have been well documented. See, for example, How Should We Serve the Short-Term Credit Needs of Low-Income Consumers?, Melissa Koide and Rachel Schneider, Joint Center for Housing Studies, Harvard University, August, 2010 (MF10-2). See also, Quick Credit, The Fringe Economy, the Great Recession, and the Welfare State, David Stoez, New America Foundation, Washington, D.C., August 2010, for a discussion of the unbanked and underbanked. Smart cards, such as prepaid debit cards, at least allow these populations to pay bills and transact business with means other than cash. These populations can least afford overcharges and may benefit from increased use of financial smart cards and the new financial regulations at the federal level.
Increased financial regulations were enacted during the recession of 2008-2010, such as the Credit Card Accountability, Responsibility and Disclosure (Credit CARD) Act of 2009, the Durbin Amendment to the Dodd-Frank Bill, and Regulation E. In addition, a new Consumer Financial Protection Bureau is underway, and is expected to result in at least minimal re-regulation of the banking industry. This means increased protection for consumers. At least one practical result is that banks are already searching for ways to maximize their revenues while complying with the new regulations. See Payment Card Issuer Strategies 2010: The Rise of the Cautious Consumer, Javelin Strategy and Research, Pleasanton, Calif., U.S.A. (publicly available excerpt). Some financial institutions even charge for calls to customer service. Eppicard Glitch causes delays for benefits recipients, Christian Science Monitor, 9-26-2010, at http://www.csmonitor.com/layout/set/print/content/view/print/324206.
Sophisticated strategies from the banks may now focus on whether to allow overdrafts at all for their checking account, credit card, and debit card holders, and if so, how to comply with the new regulations and still continue a profitable revenue stream. For example, while credit cards have seen significant changes in the playing field, prepaid, re-loadable debit cards do not appear to have been affected by the new regulations. In addition, the popularity of such cards has grown dramatically, perhaps because they are easier to obtain and satisfactorily accommodate the day-to-day financial transaction needs of the average person. From a financial institution's point of view, the cards are especially popular: There is no extension of credit; and the balance that is prepaid is available to the financial institution until presentment from a merchant or other creditor.
As debit cards, especially pre-paid, re-loadable debit cards become even more popular, and as the penalties for overdrafts vary, consumers and holders of all such cards, including branded smart cards, will want better information about the state of their account balances, and in particular, up-to-the-minute information about the balance that is available. This information will help them to get the most use of their cards while avoiding overdraft fees and other penalties.
A consumer and financial smart card user needs to know precisely and to-the-minute the amount of a card balance that is available to him or her. These and other advantages of the invention, as well as additional inventive features, will be apparent from the description of the invention provided herein.